What’s In A Name: A Look Inside ETF Tickers
Whenever a company prepares for a public offering, executives have been known to spend an inordinate amount of time choosing the combination of letters that will serve as the company’s ticker and often nickname within the investment community. To many, the fixation on selecting the perfect ticker seems like an irrational obsession on par with Patrick Bateman’s affinity for business cards. But there’s some evidence to support the idea that picking a clever ticker can be worth quite a bit of money.
An academic study titled “Would A Stock By Any Other Ticker Smell As Sweet?” (PDF) examined the performance of “clever ticker” stocks such as Southwest (LUV), Internet America (GEEK), Lion Country Safari (GRRR), and Explosive Fabricators (BOOM). This study uncovered that between 1984 and 2004, “a portfolio of clever-ticker stocks would have beaten the market by a substantial and statistically significant margin, contradicting the efficient market hypothesis.” Theories on the reason for this outperformance have been all over the board. Many have written it off as a coincidence, while others posit that a cool ticker is indicative of a more relaxed management team, and perhaps a more creative and productive corporate culture.
A similar outperformance phenomenon would be extremely unlikely in the world of ETFs–the arbitrage mechanisms in place generally prevent funds from deviating too significantly from their net asset value–but a memorable ticker may be valuable in other ways, such as boosting trading volumes and attracting cash inflows. The majority of ticker symbols are plain vanilla shorthand–some combination of letters found in the fund’s proper name. But some go much further, and a look inside the business of ETF tickers shows that issuers clearly give significant thought to picking trading symbols.
Building A Brand
Some issuers have made a push to establish their brand name through their ticker selections. Most iShares ETFs are filed under “I”, while Vanguard funds can generally be found under “V“. PowerShares product line is full of ETFs starting from P, although the company did manage to have some fun in selecting the ticker for its Dynamic Food & Beverage Portfolio (PBJ). Claymore has a theme going around its suite of China products, which include the Small Cap ETF (HAO), Real Estate Fund (TAO), and All Cap ETF (YAO).
Making Themselves Memorable
Others are simply meant to be descriptive, in four letters or less, of the fund’s assets. AGG and BND are tickers for–surprise, surprise–aggregate bond funds. The tickers for the PIMCO 1-3 Year U.S. Treasury Index Fund (TUZ – as in “twos”) and 3-7 Year U.S. Treasury Index Fund (FIVZ) make it easy to remember the mid-point maturities of the underlying Treasuries, while FUD accurately describes the assets of the E-TRACS UBS Bloomberg CMCI Food ETN. Anyone investing in the iShares Barclays TIPs Bond Fund (TIP) should have no doubt what they’re getting, just as the assets held by the iPath Livestock ETN (COW) should be readily apparent.
The alternative energy industry has fully embraced the ETF name game, boasting the global wind energy ETF (FAN), and a pair of solar energy funds (TAN and KWT). The iShares S&P Global Timber & Forestry ETF (WOOD) doesn’t even claim the title of most creative timber ETF ticker, being narrowly edged out by the Claymore/Clear Global Timber Fund (CUT). Some other classics include the Inflation Hedged ETF (CPI) and Merger Arbitrage ETF (MNA) from Index IQ.
Geared At Traders
Some ticker names are designed to be readily memorable to traders. With nearly 1,000 ETFs now available to U.S. investors, keeping track of which ticker goes with which asset class is no easy feat. Everyone knows EEM as the most popular emerging markets ETF, so it’s likely no coincidence that the Claymore/BNY BRIC ETF (EEB) and the Emerging Markets ETF from Emerging Global Advisors (EEG) are just one letter off. Likewise, ProShares’ 2x and -2x Emerging Markets funds (EET and EEV, respectively) are just one different from the EEM mega-ticker. Almost every investor recognizes QQQQ as the tech-heavy NASDAQ ETF from PowerShares, so Claymore’s pick for its China Technology ETF (CQQQ) should be easy to remember.
|More Clever ETF Tickers|
|MOO||Market Vectors Agribusiness ETF|
|DOG||ProShares Short Dow 30|
|FAA||Claymore/NYSE Arca Airline ETF|
|JO||iPath DJ-UBS Coffee ETN|
|BJK||Market Vectors Gaming ETF|
|JNK||SPDR High Yield Bond ETF|
|EPS||WisdomTree Earnings 500|
Gauging the effectiveness of a clever ticker in the ETF business is a tricky task, since the performance of a fund depends on its underlying holdings and the popularity depends so significantly on the marketing efforts put into the product line and first-to-market advantage. Still, anecdotal evidence suggests there is some benefit to a smart ticker. When I think agribusiness, MOO comes to mind, not the generally comparable PAGG. When I got into junk bonds in 2009, I went with JNK over HYG or PHB. It’s interesting to note that JNK has about twice the average daily volume of HYG despite less than a billion in total assets. It seems that I’m not the only one to default to self-deprecating but easily recalled junk bond fund.
Moreover, issuers continue to scour the available inventory to come up with the right ticker for their newest fund. When PIMCO launched the Enhanced Short Maturity Strategy Fund (MINT) and Intermediate Municipal Bond Strategy Fund (MUNI), my initial reaction was surprise that such a prime ticker was still available. Odds are that we’ll see several more classics as the wave of new ETF launches accelerates in 2010.
It takes a lot more than a catchy nickname to make an ETF go, but there are plenty in the industry who can testify that picking the right ticker can go a long way towards building a fund’s brand.
Disclosure: Long BND.